Exemption repeals on the back burner for lawmakers this year

As state lawmakers have faced shortfalls in the hundreds of millions of dollars in the last couple of years, there’s been talk of doing away with some of Idaho’s $1.7 billion worth of sales tax breaks granted 118 goods and services, but the push to review exemptions seems to have lost some steam and the issue is not likely to come up this session, many key legislators indicate.

But Assistant Majority Leader Sen. Chuck Winder, R-Boise, who last year sponsored a measure calling for review of exemptions every five years, said he will “test the waters” for support for a new push this session. Winder’s exemption review proposal cleared the Senate last year but it went nowhere in the house, House, which is the body constitutionally responsible for introducing revenue legislation. Winder’s legislation didn’t get a hearing in the House. Similar legislation proposed last year by Rep. Wendy Jaquet, D-Ketchum, got shelved in the House Revenue and Taxation Committee.

Some like Jaquet argue exemptions, once they are passed, are nearly impossible to change or repeal, even though they may have outlived their original purpose to encourage certain economic or social behavior. Many exemptions came in along with the sales tax in 1965, while others have been added since.

Some exemptions that catch the eye – breaks on caskets, glider kits, commemorative silver medallions, pet care, and barber services – are curious but don’t represent a whole lot of money. The big dollar exemptions are for professional, business, and health services – those categories together total about $750 million in tax breaks annually.

House Revenue and Taxation Committee Chair Dennis Lake, R-Blackfoot, said he’d hear proposals to get rid of any exemptions.

“If there’s some exemptions that need to go, bring a bill,” Lake said. He said many exemptions are likely safe, including the largest on production equipment.

Despite the action last year, and Winder’s willingness to keep the issue alive, many now say there’s no appetite for a new fight over exemptions. That’s as it should be, said Alex LaBeau, president of the Idaho Association of Commerce and Industry (IACI). Gov. Butch Otter’s sound thumping of Keith Allred, who called for a review of all exemptions, sends a message to legislators to steer clear, he said. Senate President Pro-tempore Brent Hill, R-Rexburg, who co-chaired a committee with Lake in 2008 looking at exemptions, said a says an exemption review system is still warranted. But for now, he said, “I don’t think anybody wants to do anything that could hurt business.”

Senate Minority Leader Les Bock, D-Boise D-Boise, says many exemptions simply amount to gifts and should be reviewed. But he agrees with Hill that the time isn’t now.

“I don’t think there’s any energy or any political will to actually tackle the problem,” he said. “You have people coming at this with different motivations. You have some people out there who are simply anti-government and they view any revenue generation as having a tendency to expand government … that argument ignores fundamental needs. They’re just not going to vote for it despite it making good business sense … I just don’t think you’ve got the votes … I think it gets to be academic. It’s not going to happen.”

Minority Leader Rep. John Rusche Rusche, D-Lewiston, said: “My guess is not much will be accomplished.” He added that changes likely won’t happen until “we figure out a more systematic way to look at tax exemptions to be sure they are performing the way we want them to.”

Rusche said many exemptions make good economic sense, but that the system should be evaluated as the economy shifts from dealing less in goods and more in services.

Jaquet hopes a current issue – the expiration of the alternative energy rebate – could spur a renewed look at exemptions across the board. She said the debate over renewal of the alternative energy rebate (enacted in 2005) could become a model for looking at the state’s many other sales tax exemptions.

“The burden needs to be on the industry to tell us why they need it (the exemption),” Jaquet told the Statesman.

She told IdahoReporter.com that lawmakers might be better served by conducting a blanket review of exemptions to broaden the taxable base of economic activity to include services.

“I don’t think there’s an appetite to do that, but I think there’s a conversation to do that.”

That would be welcome news to the Idaho Education Association, and the AFL-CIO, groups which have previously backed the taxing of services and a lowering of the overall tax rate. Some Tea Party leaders have called for the same.

But IACI president LaBeau said the debate is past and is now “popular among academics.” He said Idaho’s exemptions are in line with other states.

The state budget book stresses that exemption figures represent how much tax is being avoided by the beneficiaries and not the revenue that would be raised by eliminating an exemption. Changes could upset business models and consumer behavior.

“In many cases, especially those involving substantial structural changes, tax law changes could reasonably be expected to change the economic behavior of taxpayers,” the report reads. It goes on: “The estimates of the amount of lost revenue contained in this report do not take into consideration the overhead that would be needed to collect the lost revenue.”

Ski Lifts and Snowgrooming Equipment – exempts the lifts, snow groomers, and snowmaking equipment used by the owner of a ski area. Enacted in 1995.

Clean Rooms – exempts any tangible personal property used in or that becomes a part of a “clean room” used to manufacture semiconductors. Also includes property that is used to maintain a clean room. Enacted in 1999. Extended to include clean rooms used for research and development in 2005.

Alternative Electricity-Producing Equipment – provides a refund of sales tax paid for machinery and equipment used in alternative types of electricity production. To qualify, the facility must have a capacity of at least 25 kilowatts. The alternative methods that qualify for this exemption are fuel cells, low-impact hydro, wind, geothermal, cogeneration, solar, landfill gases, and biomass. Enacted in 2005, sunsets July 1, 2011.

Research and Development Equipment – exempts tangible personal property used in research and development activities. Enacted in 2005.

Small Employer Headquarters Construction – this rebate is contingent on a taxpayer qualifying under the “Idaho Small Employer Incentive Act of 2005.” It provides a sales and use tax rebate for 25% percent of sales and use taxes paid on property constructed, located, or installed in the “project site” (as specified in 63-4402) from January 1, 2006 Jan. 1, 2006, through December Dec. 31, 2020. General qualification criteria are specified in 63-4402, and can be summed up as making an investment of at least $500,000 in new facilities and adding at least ten 10 new jobs paying at least $19.23 per hour. The average wage for each additional job above the initial ten 10 must be at least $15.50 per hour. Enacted in 2005. Amended in 2006. Average wage calculation amended in 2008. Amended in 2009 to extend to 2020.

Glider Kit Vehicles – enacted in 2006.

Funeral Caskets – exempts goods sold in conjunction with a funeral. Enacted in 1977.

Professional Services – legal, accounting, engineering, architectural, consulting, scientific research, and advertising services fall within this category. Exempt since enactment of the sales tax in 1965.

Business Services – office services, employment services, building services, employment agencies, facility services, and security agencies are some of the major elements of this category. NAICS major groups 561 and 562 are in this category. Exempt since enactment of the sales tax in 1965.

Personal Services – laundry and dry cleaning, barbers and beauticians, shoe repair, funeral services, massage parlors, and escort services are among the elements of the personal services major group. Exempt since enactment of the sales tax in 1965.

Health and Medical Services – doctors, dentists, hospitals, and nursing home services are the principal elements of this category. Exempt since enactment of the sales tax in 1965.

Miscellaneous exempt services – includes pet care, barber shops, and parking lots and garages. Exempt since enactment of the sales tax in 1965.

Sales by Indian tribes on reservations Tribes on Reservations – allows a tribal enterprise to make sales to both Indians and non-Indians without collecting sales tax, provides that no use tax applies to the purchase if a non-Indian removes the goods from the reservation. Enacted in 1984.

Sales by Outfitters and Guides – allows outfitters to exclude from the taxable amount charged to their customers the federal fees imposed on outfitters for the right to use recreational sites. Enacted in 1990. Amended in 1994 to eliminate the provision that the federal fees must be for the purpose of managing the land or water upon which the outfitting occurs.

Sales Through Vending Machines – allows retailers selling products through vending machines for $1 or less to pay tax on 117% of their acquisition cost of the products rather than on the retail sales price. Enacted in 1977. Auto manufacturer Manufacturer Rebates – allows dealers to deduct the amount of a rebate given to the buyer, by the motor vehicle manufacturer, from the taxable sales price of the vehicle. Enacted in 1990.

Services not taxed 2011 2012 2013

Health and Medical Services $394.2 million $410 million $429.5 million

Professional Services $212.9 million $219.9 million $227.4 million

Business Services $121.5 million $125.5 million $129.7 million

Construction $97.5 million $100 million $109.5 million

Information Services $88.3 million $88.3 million $89.9 million

Social Services $65.3 million $67.9 million $71.1 million

Repairs $44.4 million $45.9 million $47.4 million

Transportation Services $35.7 million $36.9 million $37.9 million

Educational Services $33.4 million $34.5 million $35.7 million

Lottery and Pari-mutuel betting $10 million $10.4 million $10.8 million

Personal Services $9.9 million $10.2 million $10.5 million

Ag and Industrial Services $3.7 million $3.8 million $3.9 million

Miscellaneous Services $2.5 million $2.6 million $2.7 million

Media Measurement Services $68,000 $70,000 $73,000

Nonprofit Shooting Range Fees $34,000 $35,000 $36,000

Uses not taxed 2010 2011 2012

Production Equipment $59.5 million $67.9 million $74.2 million

Production Supplies $45 million $51.4 million $56.2 million

Trade-in Value $23.3 million $24.6 million $28.5 million

Motor Vehicles Used Outside of Id $13 million $13.7 million $15.9 million

Food Stamps/WIC $13.5 million $14 million $14.5 million

Pollution Control Equipment $8.8 million $8.3 million $7.9 million

Research/Development Equipment $7.2 million $7.2 million $7.2 million

Interstate Trucks $5.5 million $5.7 million $6.7 million

Out-of-State Contracts $3.4 million $4.1 million $4.5 million

School Lunch/Senior Citizen Meals $3.9 million $4 million $4.2 million

Irrigation Equipment $3.7 million $3.8 million $3.9 million

State Tax Anticipation Revenue $3.3 million $3.3 million $3.3 million

Broadcast Equipment $2.1 million $2.4 million $2.7 million

Railroad Rolling Stock $2.5 million $2.5 million $2.5 million

Sale or Lease of Bus. or bus. assets $1.7 million $1.9 million $2.1 million

Commercial Aircraft $1.8 million $1.8 million $1.9 million

Ski Lifts/Snow grooming equip. $600,000 $600,000 $600,000

Clean Rooms $480,000 $480,000 $480,000

Glider Kit Vehicles $239,000 $253,000 $292,000

Publishing Equipment $138,000 $157,000 $172,000

Small Employer HQ Construction $115,000 $115,000 $115,000

Lodging, Eating, Drinking Places $76,000 $79,000 $82,000

Media Production Projects $61,000 $64,000 $66,000

Drivers Education Automobiles $37,000 $39,000 $40,000

Incidental Sales of Tangible prop $12,000 $12,000 $12,000

Donations of Real Property to state $4,000 $4,000 $4,000

Alternative Electricity equip. $300,000 $900,000 Sunset

Goods not taxed 2011 2012 2013

Motor Fuels $157.4 million $166.8 million $174.1 million

Utility Sales $90.6 million $93.3 million $96.1 million

RX/Medical Equipment $41.2 million $44.4 million $47.7 million

Heating Materials $5.2 million $5.3 million $5.4 million

Used Mobile Homes $2.7 million $2.7 million $2.7 million

New Manufactured Homes $2.2 million $2.3 million $2.4 million

Telecommunications Equip. $1.5 million $1.7 million $1.8 million

Funeral Caskets $1.3 million $1.4 million $1.4 million

Precious Metal Bullion $558,000 $558,000 $558,000

Personal Prop. Tax on Rentals $400,000 $400,000 $400,000

Nonprofit Literature $133,000 $135,000 $137,000

Official Documents $66,000 $67,000 $68,000

Containers $37,000 $38,000 $39,000

Idaho Comm. Medallions $2,000 $2,000 $2,000

Entities not taxed 2011 2012 2013

State/Local Govt. Purchases $26.7 million $27 million $27.7 million

Hospital Purchases $23.9 million $24.9 million $26.1 million

Ed Institution Purchases $9.5 million $9.8 million $10.2 million

Sales by Indian Tribes on Reservations $5.1 million $5.2 million $5.4 million

Yard and Occasional Sales $3.2 million $3.3 million $3.5 million

Sales Through Vending Machines $2.4 million $2.5 million $2.6 million

Motor Vehicle Purch. by Family Mbrs. $1.6 million $1.9 million $2 million

Canal Company Purchases $1 million $1 million $1 million

Incidental Sales by Churches $808,000 $839,000 $867,000

Auto Manufacturer Rebates $533,000 $616,000 $665,000

Health Entity Purchases $392,000 $407,000 $421,000

Food Bank Purchases $281,000 $292,000 $302,000

Museums $198,000 $206,000 $213,000

Volunteer Fire Departments $181,000 $188,000 $195,000

Senior Citizens Centers $43,000 $45,000 $46,000

Forest Protective Association Purchases $44,000 $45,000 $45,000

Sales by 4-H and FFA Clubs at Fairs $28,000 $28,000 $28,000

Sales by Outfitters and Guides $16,000 $16,000 $16,000

Sales of Meals by Churches to Members $13,000 $13,000 $13,000

Free Dental Clinics $10,000 $11,000 $11,000

Advocates for Survivors of DV $9,000 $10,000 $10,000

Blind Services Foundation, Inc. $8,000 $8,000 $8,000

Centers for Independent Living $5,000 $5,000 $6,000

Nonsale Clothier Purchases $1,000 $1,000 $1,000

Ronald McDonald House Rooms $1,000 $1,000 $1,000

Uses of Income Not Taxed 2010 2011 2012

Grocery Credit $78.7 million $93.8 million $109.6 million

Other States Tax Credit $62.6 million $64.5 million $67.7 million

Investment Tax Credit $30 million $33.3 million $36.2 million

Health Insurance Deduction $13.7 million $14.2 million $14.8 million

Schools, Libraries, and Museums Cr. $4.2 million $9.3 million $9.6 million

Youth and rehabilitation credit $8.4 million $8.5 million $8.7 million

Child Care Deduction $4.2 million $4.3 million $4.4 million

College Savings Deduction $1.5 million $1.5 million $1.5 million

Long-Term Care Insurance Deduction $1.1 million $1.1 million $1.2 million

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